In what was probably its most comprehensive decision onCalifornia since its famed Dec. 15 order, FERC last week announceda series of actions designed to boost energy supply, reduce demandand alleviate the delivery bottlenecks that continue to bedevil thewholesale electricity and natural gas markets in the state andoverall western region.
But noticeably absent from the order, which spelled out bothimmediate and proposed actions, was any mention of what Californiaand western electric customers want most – some form of temporaryprice relief. Commissioner William Massey was the lone dissenter onthe order due to this omission.
By a vote of 2-1, the Commission moved to streamline regulationsto encourage greater production and sales of power from qualifyingfacilities (QFs) and on-site generators, and offered incentives toretail and wholesale customers to lower their consumption ofelectricity. It also extended rate and other economic incentives,such as a higher return on equity (14.5%), to utilities and gaspipelines to provide additional capacity for the California marketin the short term. Moreover, FERC said it would reallocate itsstaff resources to expedite the certification of gas pipelineprojects to California and the West [EL01-47].
Effective immediately on the electric side, the Commission saidit will require the California Independent System Operator(Cal-ISO) and transmission owners in the West to file a list of”grid enhancements” that can be completed in the short term; extendand broaden the temporary waiver of operating and efficiencystandards and fuel-use requirements for QFs in the West; waiveprior-notice requirements and grant market-based rate authority forwholesale power sales from on-site generation facilities ofbusinesses in the West; and authorize retail customers, whereallowed by state law, and wholesale customers who cut their energyconsumption to resell the load reduction at market-based rates. Italso plans to hold a conference in the spring with hydro licensees,resource agencies and others to discuss ways to increase generationcapacity.
In addition to boosting supply, the Commission seeks industrycomments on a proposal to award higher rates of return on equityfor projects that can significantly increase transmission capacityon constrained routes and can be in service by June or Nov. 1 ofthis year. Moreover, it proposes higher rates of return for systemupgrades that involve new transmission routes and can be inoperation by June 1, 2002 or Nov. 1, 2002.
To further promote investment in the transmissioninfrastructure, FERC also is considering offering a 10-yeardepreciation for projects that can boost transmission capacity inthe short term, and a 15-year depreciation for upgrades involvingnew rights-of-ways that can be in service by Nov. 1, 2002.
On the natural gas side, the Commission is seeking comment onproposals to waive the blanket-certificate regulations to increasethe dollar limitations for facilities under automaticauthorizations to $10 million and for prior-notice authorizationsto $30 million; waive the blanket certificates for portablecompressor facilities to expand pipeline capacity; AND offer rateincentives to pipelines to build projects that will provideadditional capacity by this summer on constrained California-boundsystems.
As for hydroelectric projects, FERC has asked all hydrolicensees to examine their projects and propose any efficiencymodifications that may contribute to increased power generationsupplies. Hydroelectric facilities account for about 40% of thepower generated in the Western Systems Coordinating Council.
As part of its decision, FERC said it intends to hold a one-dayconference on April 6 in Boise, ID, with state regulators and otherstate representatives on the issue of price volatility in westernenergy markets. The Commission has asked the energy industries tosubmit comments on its proposed actions by March 30.
Despite all of these actions and proposed initiatives, Masseyinsisted the Commission’s decision fell short. “I want us to doeverything that we can…..that is reasonable and rational, butthis order makes errors of omission and commission from which Imust dissent,” he said. This order “focuses on quick fixes to helpnarrow somewhat the gap between supply and demand in the West.[But] I don’t believe that anyone sitting at this table seriouslybelieves these measures will close that gap substantially.”
He was especially critical of the order’s absence of immediateprice relief for western electric customers. He called on theCommission to establish as part of the order a Section 206investigation into the “appropriateness of effective pricemitigation for the western interconnection until the longer termsolutions are in place and the [wholesale electric] markets operatenormally.”
Such an investigation should explore the “conditions in thewestern interconnection [that] are forbidding competitive marketoperation, how long those conditions are expected to last, and whatthe Commission can do to provide immediate price mitigation,”Massey said.
But Chairman Curt Hebert countered that the order was notintended to address short-term price relief. That issue, he said,was tackled in a March 9 order that put 13 California powersuppliers on notice that they may owe refunds of up to $69 millionfor electricity overcharges during the month of January.
This decision was designed to “squeeze every megawatt of power”out of the California market, Hebert noted. The Commission is doing”everything in its power” to make that happen.
Massey pointed out that a number of the actions taken by FERC inlast week’s order weren’t new. “Many of these same actions wereauthorized by the Commission last year in our May 2000 reliabilityinitiative,” he said.
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